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Books - Winning the War on Drugs
Written by Richard Stevenson   

In a legal system it would no longer be an offence to. possess, use or trade in drugs. Under such a régime a variety of institutional arrangements is possible. All legalisation proposals, however, agree that drugs would bear a sternly-worded government health warning and that sales to children would remain illegal. (This much was conceded by John Stuart Mill in 1859.1)

Legalisation proposals differ mainly in the amount of state intervention envisaged. For example, a French lawyer, Francis Caballero, proposes a state monopoly of production and distribution, and would prohibit advertising or any other form of incitement to consume drugs.2 In ScandinaYla and parts of' Canada and the USA where the sale of alcohol is a state monopoly, a similar monopoly for drugs might be the only acceptable approach; otherwise psychoactive drugs would be less strictly controlled than alcohol.

Elsewhere, drugs could be produced and sold in Ovate markets subject to differing degrees of regulation. Joseph Galiber presented a bill to the New York State Senate in 1989 which proposed a private market system regulated by detailed licensing and zoning restrictions.3 Other supporters of legalisation regard most of the evils of drug abuse as entirely predictable consequences of the failure of government intervention, and would prefer to minimise the rôle of government. In principle, there is no reason why drugs should not be sold in relatively unfettered markets, subject only to existing laws as they apply to most ordinary goods.4 The next section explains how such a market system might work, but reservations are expressed. Much depends on the nature and performance of legal markets. Circumstances might emerge in which specific drug market regulation would be desirable, but in the meantime there is a case for the exercise of regulatory constraint.

A Free Market in Drugs

After 70 years of prohibition it is difficult to predict the dimensions and nature of a legal market, but the likelihood is that costs and pric6 would fall, product quality would improve, and private markets would be 'workably

In illegal markets, firms are designed to survive penetration by the enforcement agencies and are inefficient by. the standards of legal companies.6 In New York, for example, there is said to be a six-tiered distribution network. Along this chain, information flows are strictly controlled so that the apprehension of a single operator does not compromise the entire network.7 If modern trends in retailing are a guide, fewer distribution stages would be required in a legal drug industry, and costs would be further reduced by improved information flows within firms. Competition among firms, and the need to comply with product liability law, would ensure improvements in the quality of the product.

In competitive markets, profitability would determine the dominant market form at the retail level. A range of products differentiated by brand name would be offered for sale, and drug users would choose among them in much the same way as drinkers choose between beer, wine and spirits. In ideal circumstances, the self-interest of users and producers would combine to minimise the dangers of drug use.

Users have a powerful incentive to avoid the health risks inherent in drug use. In many markets where products are highly differentiated, and the consequences of mistakes can be serious (if only financially), consumers find it profitable to invest in market information. Good food guides and Which? magazine are examples. Information networks exist in illegal drug markets but, being clandestine, they are highly imperfect. If drugs were legal, information flows would develop in parallel with product markets. Some drug information could be sold, perhaps in magazines, and some would be provided by drug companies and voluntary groups.

The Supply Side

It might be feared that legalisation would lead to a market in which many dealers of doubtful reputation would peddle dangerous substances to the detriment of public health. In fact, such features are more characteristic of illegal than of' legal markets. During Prohibition in the USA, adulterated whisky was a threat to health and life. In present-day legal markets, contaminated whisky is unknown. Brand names are amongst the principal assets of companies and product safety is of paramount importance. In general, the self-int_erest of drug companies might be expected to lead to the orderly marketing of safe products, but much would depend on the structure and performance of the industry at the production, distribution and retailing stages.

At the production level, ample resources and the absence of significant barriers to entry would be likely to procruce a competitive international market in which natural drugs competed with synthetic drugs. At the processing and distrib-ution stages, economies of scale might give rise to large companies. They could be new specialist drug firms, or exist-ing companies with complementary interests in tobacco or pharmaceuticals.

Large companies with heavy investment in their corporate images intend to stay in business. Irrespective of the requirements of the law, they have incentives to market safe, carefully labelled and packaged products. Price competition is unlikely to be a strong feature of markets in standard products such as heroin and cocaine. If the experience of pharmaceuticals is a guide, drug products would have a life-cycle over which profitability eventually declined. In com-petitive environments, corporate profitability depends on continuous innovation, so that new products emerge as existing products reach the declining stages of their life-cycles.

In research and development, and marketing strategies of all sorts, safety considerations would be dominant. One likely effect of legalisation would be to stimulate a search for new sorts of drugs to provide the characteristics which users demand in safer forms.8 For this reason, it would seem unnecessary and undesirable to restrict the flow of product information arbitrarily by prohibiting advertising. It should not be assumed that it would pay to advertise drugs 'like soap powder'. Advertising allows firms to inform consumers of the existence of weaker or safer drugs like low-tar cigarettes and low-alcohol beer. Sober, informative drug advertising could serve a corporate image as well as the public interest.

Equilibrium in a Free Market

In a market system, equilibrium is approached by an adjustment process. Competitive mechanisms determine the most profitable production and distribution methods and users also follow a learning process. In drugs markets most people would abstain; some would learn to cope; and there would no doubt be casualties. Mistakes would be made and some users would suffer, but private citizens are not helpless in the face of market imperfections. Drug users, and those who care about drug users, would organise in response to drug-problems as they do in the illegal market.

Parents, therapeutic communities and other institutions would continue to play important rôles in dealing with problem users. In a legal market, they might well be more effective than at present. Drug users would also band together to protect their interests. On the supply side, some drug production and distribution would be taken up by co-operatives such as those which already exist in California. In the longer term, systems of informal control based on custom, manners and precept might well be established so as to remove or greatly reduce the need for regulation.

Ideally, regulation should flow from demonstrable failings in the market; it is justifiable if, and only if, governments can do better. Unless those strict conditions are met, free market legalisers will be reluctant to admit that specific drug market regulation will be beneficial.

Regulatory Frameworks

It is feasible for psychoactive drugs to be sold like most ordinary goods, but circumstances might arise in which regulation appeared desirable for efficiency reasons. For instance, the transition from prohibition to an orderly market might be long and bumpy, and regulation could perform a useful function by smoothing the path. Moreover, regulation could be desirable if drug markets performed badly. However, legislators are unlikely to be willing to exercise regulatory restraint until after the performance of drug markets has been demonstrated. In the present climate of opinion, the public would probably require what it regards as safeguards before legalisation can proceed.

Most probably governments would insist on licensing producers and distributors and would control some aspects of marketing strategies. Consideration would be given to legalising some drugs and not others, though such a' move should be resisted since it would give an incentive to criminals to specialise in the sale of the more dangerous sorts. More sensibly, government or the industry could standardise purity and packaging to reduce the risk of overdosing.

At the retail level, government might not be content to allow market forces to determine the dominant market form. Sales could be restricted to pharmacists who might be required to give a personal word of warning. A ban on advertising would probably also be proposed. As explained above, a total ban would be a mistake, but no doubt pressure would exist to regulate along the lines adopted for cigarettes and alcohol. It is already an offence to operate a motor vehicle under the influence of drugs, but if drugs were more freely available, drug testing for some occupational groups such as cab drivers and airline pilots might become more commonplace.

Governments could also seek ways of improving the working of the legal market. Education programmes could be a cost-effective means of reducing demands on the NHS, which would continue to provide services for problem users. Legalisation might increase the demand for NHS services, but it would also release resources currently employed in law enforcement. Some proportion of those savings could be devoted to much improved services for problem users.

Legalisation also raises the issue of taxing drugs as a means of raising revenue and restraining demand. There is a case for an 'optimum tax' which would raise just enough revenue to compensate for the costs drug users impose on others, though it would be very difficult to calculate what that rate of tax should be. Since most of the external costs of drug abuse are a consequence of its illegality, an optimum tax might be too small to satisfy either the Exchequer or those who would argue for a high tax to curb demand. It would seem reasonable to tax psychoactive drugs at rates similar to those imposed on tobacco and alcohol, but hard to justify rates which are any higher.

This brief account by no means exhausts the possibilities for government intervention in the legal drug market. It does, however, raise the issue of whether the objectives of legalisation might be compromised by excessive regulation.

The Regulatory Threat

Legalisation without some sort of regulation may well be unattainable but in the political process which determines the nature and extent of that regulation, economists' notions of efficiency receive scant attention. Also under-represented in the debate are those who argue in favour of the freedom to choose. In consequence, the authority of the state is more likeLy to be invoked on the side of choice restriction. For such reasons, Littlechild and Wiseman have argued that policy proposals which restrict choice should be regarded with 'cautious suspicion'.9

The case for regulatory restraint is particularly strong where drugs are concerned because the quality of infor-mation available to decision-makers is likely to be of poor quality. Hamowy has shown that in the United States, private and public interest groups have consistently resorted to misrepresentation in pursuit of their objectives.1° Reference has been made to popular misconceptions of the nature of drug abuse (Chapter II) and even British Ministers are prone to sensational and inaccurate statements (Chapter III, p. 42).

Moreover, in all countries large bureaucracies have vested interest in exaggerating the perils of drug abuse.

The misinformation which surrounds drug issues biases public opinion in the direction of government control, and government control, as Professor Griffith Edwards has written:

`..bear[s] witness to a profound distrust of the strength and quality of our own culture. It can then be argued that the process becomes circular, and the more we legislate ... the more certainly will informal cultural processes wither and fade'.11

Drug market regulation designed in advance of legalisation attempts to out-guess markets. Premature regulation may lead to allocative and technical inefficiency and cannot guarantee to protect the drug user any more effectively than does prohibition. Some regulation is politically unavoidable, but until markets have had a chance to perform, regulation is best regarded as a threat to be resisted.

Summary and Conclusion

A preference has been expressed in this Hobart Paper for a relatively free market system for the production and distribution of drugs. In part this is a response to critics .who have claimed (mistakenly) that proponents of legalisation are reticent in matters of operational detail. However, uncertainty about the nature of a legal market militates against dogmatism. It would be sensible to proceed cautiously, to monitor consequences and to revise ideas in response to experience. Institutional arrangements are a matter for debate but they are not a serious impediment to drug law reform.

All legal systems offer economic, social, political and medical advantages over prohibition. The economic case for legalisation is particularly strong. Cheap legal drugs will reduce the external costs of drug use which are found in acquisitive (sometimes violent) crime and risks to public health. Savings can be expected in police forces and the criminal justice system. In the private sector, a reduction in crime will cut the cost of protecting property.

It is by no means certain that the consumption of some of the less attractive substances such as heroin will increase. This has not, for instance, been the experience of The Netherlands. The use of some drugs may increase but it does not follow that the number of problem users will also rise. Drug use in illegal markets is peculiarly dangerous. In legal markets, assured product quality will reduce these dangers.

It is not supposed that legalisation will solve all drug problems but the problems which remain will be social and medical. Legalisers believe that individual users, their families, voluntary agencies and the medical profession will cope better in a legal system where problems are visible. It might also be hoped that some part of the resources currently devoted to the enforcement of laws which are unenforceable might be directed to helping problem users who fare so badly under prohibition.

1 J.S. Mill, On Liberty (1859), London: Pelican Books, 1974.

2 Francis Caballero, Droit tie la Drogue, Paris: Dalloz, 1989.

3 J. Galiber, 'A bill to make all drugs as legal as alcohol', in Trebach & Zeese, op. rit.

4 Richard Stevenson, 'Can markets cope with drugs?', Journal of Drug Issues, Vol.20, No.4, 1990, pp.659-66.

5 RI Michaels, in Hamowy, op. cit.

6 S. Rottenburg, 'The clandestine distribution of heroin, its discovery and suppression', Journal of Political Economy, Vol.76, 1968, pp.78-90.

7 M.H. Moore, Buy and Bust: The Effective Regulation of an Illicit Market in Heroin, Lexington, Mass.: D.C. Heath and Company, 1977.

8 ln Holland plant breeders have already produced improved strains of cannabis illegally.

9 S.C. Littlechild and J. 'Wiseman, The political economy of the restriction of choice', Public Choice, Vol.51, 1986, pp.161-72.

10 R. Hamowy, 'Illicit drugs and government control', in Hamowy, op. cit.

11 V. Berridge and G. Edwarcis, op. cit., p.261.


Our valuable member Richard Stevenson has been with us since Tuesday, 21 February 2012.

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